The Obama administration plans an Aug. 17 conference to discuss ways to fix the country’s “broken” housing-finance system and intends to submit a proposal by January to overhaul Fannie Mae and Freddie Mac.
“The future of our housing-finance system is critical not only to our economic recovery, but also to millions of American homeowners in every corner of our country,” Treasury Secretary Timothy F. Geithner said today in a statement released in Washington.
Falling home prices, together with easy availability of credit and government policies promoting homeownership, pushed Fannie Mae and Freddie Mac to the brink of collapse in 2008. The Treasury seized them in September of that year and has spent $145 billion so far to keep them solvent.
The administration wants a “comprehensive reform proposal that protects taxpayers, institutes tough oversight, restores the long-term health of our housing market, and strengthens our nation’s economic recovery,” he said.
In April, Treasury and the Department of Housing and Urban Development asked for public comment on how to fix the system.
In a separate statement, Jeffrey Goldstein, the Treasury’s undersecretary for domestic finance, said Fannie Mae and Freddie Mac have been “tightly supervised and regulated” since they went into government conservatorship two years ago. The two mortgage-finance companies have made “significant progress in improving the credit quality” of their new obligations, Goldstein said.
The review of the housing system will include Fannie Mae, Freddie Mac, the Federal Housing Administration, Ginnie Mae, the Federal Home Loan Banks and a “significant private sector role” in originating, funding and servicing mortgages, Goldstein said.
Fannie Mae and Freddie Mac guarantee more than $5 trillion in mortgages and hold $1.6 trillion in agency loans and other securities in their portfolios, Goldstein said. Created by the government to expand mortgage financing and encourage home ownership, the two companies will undergo “responsible reform” that will likely mean a different government role in housing, he said.
“For decades, Fannie Mae and Freddie Mac privatized their profits while ultimately putting taxpayers at risk for losses,” Goldstein said. “This type of ‘heads private shareholders win, tails taxpayers lose’ system of misaligned incentives makes no sense for the nation.”
Private capital hasn’t returned to the housing market, with Fannie Mae, Freddie Mac and other government entities guaranteeing more than 90 percent of new mortgages, Goldstein said. “They are practically the only game in town,” he said.
After reaching a record high of 69.2 percent in the second quarter of 2004, U.S. home ownership fell last quarter to 66.9 percent, the lowest level since 1999, according to Commerce Department figures released today.
U.S. Representative Michelle Bachmann, a Minnesota Republican and member of the House Financial Services Committee, said a “reasonable compromise” can be reached on housing finance.
“But we can’t have Uncle Sam be everyone’s mortgage banker,” she said in an interview today. “To nationalize housing would mean we’ll have a scarcity, ultimately, of housing, and it will guarantee that it’s far more expensive than it has to be.”
Home prices in 20 U.S. cities rose more than forecast in May from a year earlier as a government tax credit temporarily underpinned sales, a report showed earlier today. The S&P/Case- Shiller index of property values increased 4.6 percent from May 2009, the biggest year-over-year gain since August 2006, the group said today in New York.